UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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GOVERNMENT PROPERTIES TRUST, INC.
(Name of Registrant as Specified In Its Charter)
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(GPT LOGO)
10250 Regency Circle, Suite 100
Omaha, Nebraska 68114
402-391-0010
Fax 402-391-4144
www.gptrust.com NYSE: GPP
April 21, 2004
To Our Stockholders:
We are pleased to welcome you as stockholders of Government Properties Trust,
Inc. GPT became a public company through an initial public offering in January
2004, raising net proceeds of $177 million. Initially, we used the initial
public offering proceeds to pay down outstanding debt, and the remainder is now
being deployed to grow our portfolio of properties and add value to our company.
Upon completion of the IPO, we reincorporated in Maryland, became internally
managed and changed our name to Government Properties Trust. The enclosed
financial statements relate to our old structure and name. Because our 2003
performance is not indicative of the type of company that we are today, or of
the type of company we will become, we want to focus this letter on the present
and the future rather than on the past.
ATTRACTIVE MARKET OPPORTUNITY
We believe that we are the only public company solely focused on investing in
government-leased properties, of which there is a large and growing supply. All
of our current government tenants are agencies of the federal government, which
is the largest user of real estate in the nation. The federal government
currently occupies 835 million square feet of office and related space. Of that,
it leases 191 million square feet of office space from more than 8,000 private
property owners and spends approximately $3.6 billion on rent annually.
The federal government is turning more to leasing rather than owning properties.
In fact, from 1997 through 2002, the federal government increased its occupancy
of leased office space by 63 million square feet, or an average of 17 million
square feet of new leased space per year. This represents an 8.3% compound
average growth rate for leased space compared with a 2.3% compound annual growth
rate for owned space over the same period of time. We intend to capitalize on
this trend to fuel our growth.
FOCUSED BUSINESS STRATEGY
Our status as a public company gives us significant competitive advantages when
purchasing properties. We focus on properties valued at $10 million or more,
which are often beyond the financial reach of many private investors. Our
balance sheet and access to capital give sellers and the General Services
Administration, or GSA, the federal government's property management arm,
confidence that we can close acquisitions.
Another competitive advantage is our strong relationships with participants in
the government-leased real estate market. Some members of our team have been
active in this market for more than a decade and have developed excellent
relationships with the GSA and the owners and developers of GSA properties.
Turning to our acquisition strategy, our target properties are fully leased to
the federal government, have remaining lease terms of 10 years or more, and have
been built or significantly remodeled within the last five years to meet the
GSA's current specifications. The federal government is considered to be the
best credit risk in the world, and our strategy is to leverage the superior
credit quality of this tenant and use debt to finance approximately 75% of the
acquisition cost of the properties that we buy.
One of the most significant risks that we face is the preservation of the net
operating income from each property that we own--that is preventing any
unexpected "leakage" between gross revenue and net operating income. Currently
our GSA leases are modified gross leases, which means we could bear most of the
risk for higher operating costs. We reduce this risk through annual Consumer
Price Index-based rent
increases and lease terms that assign the risk of property tax increases to the
government. We manage the remaining risk through stringent due diligence,
thoroughly investigating operating costs prior to acquisition and, after
acquisition, managing these properties in a budget-driven manner while
preserving value.
There is an emerging trend towards more net-like GSA leases, which means the
government assumes more risk for operating cost increases. This is obviously
good for us and reduces our operating risk. While we will attempt to obtain
properties with these types of net leases, it is important to note that most GSA
leases still are modified gross leases.
Interest rates have also been in our favor. In the current interest rate
environment, we are reviewing properties with capitalization rates in the 8% to
mid-9% level. Since our IPO, yields on 10-year treasuries have fluctuated quite
a bit, which has led to corresponding fluctuations in capitalization rates
within the marketplace. Fortunately, borrowing rates have also fluctuated most
recently in a corresponding manner and our targeted spreads are being achieved.
Another factor that mitigates acquisition and management risks is our
experienced management team. Our team has over 100 years of combined experience
in the commercial and investment real estate industry.
EXPANDING PIPELINE TO ADD STOCKHOLDER VALUE
At the end of 2003, our portfolio consisted of five properties totaling
approximately 248,000 square feet. These properties were, and still are, 100%
occupied, have no delinquencies, and currently have an average remaining lease
term of approximately 13 years. Four properties are occupied by U.S. government
agencies while Federal Express Corporation occupies one.
We have decided to sell the FedEx property so that our portfolio is leased
exclusively by government entities. We recently agreed to sell the FedEx
property for approximately $4.6 million.
At the time of our IPO, we had $129 million in property under purchase contract
or letter of intent to purchase. Additionally, we were considering for
acquisition an additional $169 million in properties. In March, we closed on the
first of these properties, a 38,000-square-foot Bureau of Public Debt facility
in Mineral Wells, W. Va., for $5 million. Also in March, we moved two properties
totaling $36 million in aggregate purchase price from letter of intent to
contract. Further, we have increased the pipeline of properties under
consideration to in excess of $500 million.
Two properties that we had under contract at the time of the IPO are no longer
under contract due to valuation issues. Negotiations continue on both of these
properties. However, we remain steadfast in our mission to acquire properties
based on sound business decisions and thorough due diligence. To maximize
long-term stockholder value, we must operate our business and acquire properties
in a disciplined manner.
When we filed for our IPO, we expected to raise approximately $128 million in
net proceeds, which led us to anticipate that we would close $500 million in
acquisitions within 12 months. Instead, we raised $177 million in net IPO
proceeds, almost 40% more than our original expectations. The additional funds
have raised our acquisition target to $700 million, but lengthened the timeframe
to deploy all of the proceeds to 15 months from the closing of the offering.
Deploying our funds and becoming fully leveraged in a rapid, but disciplined,
manner are key to increasing value to our stockholders. Once we reach this
stage, we will review our dividend payout. To date we have issued a quarterly
dividend of 15 cents per share. Over time, our goal is to consistently increase
our payout, subject, of course, to Board approval.
LOOKING FORWARD
We are on track to grow our portfolio through a pipeline that has grown
significantly since the IPO. As I write this letter, in addition to the
potential acquisitions already mentioned, we have entered into negotiations on
23 properties valued at $581 million, representing over 2.9 million square feet
of leased
(GPT LOGO)
Page 2 of 3
space and an average remaining lease term of 12 years. The purchase prices range
from a low of $4 million to $48 million on the high end, and the average cost
per square foot is less than $200.
Again, our top priority is to profitably deploy our stockholders' funds by
aggressively acquiring high-quality properties in a disciplined manner. We are
confident that we can accomplish this. We have an excellent acquisition
pipeline. We have a growing target market and strong industry relationships to
provide acquisition opportunities. We have a management team that can execute
this strategy.
In closing, we want to thank our employees, stockholders and our tenant--the
United States of America--for their support as we work to achieve our goals and
become America's Landlord. We look forward to updating you on our progress over
the course of the year.
Sincerely,
-s- Thomas D. Peschio
Thomas D. Peschio, CRE
President and Chief Executive Officer
(GPT LOGO)
Page 3 of 3
NOTICE OF 2004 ANNUAL MEETING
OF STOCKHOLDERS
Date: Wednesday, June 2, 2004
Time: 1:00 p.m. Central time
Place: Offices of Blackwell Sanders Peper Martin LLP
1620 Dodge Street, Suite 2100
Omaha, Nebraska 68102
MATTERS TO BE CONSIDERED:
- Election of directors
- Any other matters that may properly be brought before the meeting
By order of the Board of Directors
Thomas D. Peschio
Secretary
April 24, 2004
CONTENTS
--------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE MEETING....................... 2
PROPOSAL 1: ELECTION OF DIRECTORS........................... 3
About the Board and its committees............. 7
COMPENSATION................................................ 10
Director compensation.......................... 10
Executive compensation......................... 10
Security ownership............................. 10
Employment agreements.......................... 11
COMPENSATION COMMITTEE REPORT............................... 13
PERFORMANCE GRAPH........................................... 14
APPOINTMENT OF EXTERNAL AUDITOR............................. 14
AUDIT COMMITTEE REPORT...................................... 15
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR THE 2005 ANNUAL
MEETING................................................... 16
APPENDIX A: CHARTER OF THE AUDIT COMMITTEE.................. A-1
PROXY STATEMENT
------------------------------------------------------------
Your vote is very important. For this reason, the Board of
Directors requests that you allow your common stock to be
represented at the annual meeting by the proxies named on
the enclosed proxy card. This proxy statement is being sent
to you in connection with this request and has been prepared
for the Board by our management. The terms "we", "our",
"GPT" and the "Company" all refer to Government Properties
Trust, Inc. The proxy statement is being sent to our
stockholders on or about April 24, 2004.
GENERAL INFORMATION ABOUT THE MEETING
------------------------------------------------------------
WHO CAN VOTE You may vote your GPT common stock if our records showed
that you owned your shares on April 21, 2004. At the close
of business on that date, a total of 20,680,502 shares of
our common stock were outstanding and entitled to vote. Each
share of GPT common stock has one vote. The enclosed proxy
card shows the number of shares that you may vote. Your vote
is confidential and will not be disclosed to persons other
than those recording the vote, except as may be required by
law or as authorized by you.
VOTING YOUR PROXY If you own your common stock through a broker, bank or other
nominee, you will receive instructions from them that you
must follow to vote your shares.
If you own your shares directly in your own name, you may
instruct the proxies how to vote your common stock by
signing, dating and mailing the proxy card in the postage
paid envelope that we have provided for you.
You can always come to the meeting and vote your shares in
person. Whichever method you use, the proxies will vote your
shares in accordance with your instructions. If you sign and
return a proxy card without giving specific voting
instructions, your shares will be voted as recommended by
our Board of Directors.
MATTERS TO BE PRESENTED We are not aware of any matters that will presented other
than those described in this proxy statement. If any matters
not described in the proxy statement are properly presented
at the meeting, the proxies will use their judgment to
determine how to vote your shares. If the meeting is
adjourned, the proxies can vote your common stock on the new
meeting date as well, unless you have revoked your proxy
instructions.
REVOKING YOUR PROXY You may revoke your proxy instructions at any time before
the meeting. To do so, you must:
- advise our Corporate Secretary in writing;
- deliver new proxy instructions; or
- attend the meeting and vote your shares in person.
HOW VOTES ARE COUNTED We will hold the annual meeting if a majority of our
outstanding common stock is represented at the meeting. If
you have returned valid proxy instructions or attend the
meeting in person, your common stock will be counted for the
purpose of determining whether there is a quorum, even if
you wish to abstain from voting on some or all matters
introduced at the meeting.
2
If you own your shares through a bank, broker or other
nominee (in "street name") and you do not instruct your
nominee how to vote your shares, your nominee may either
leave your shares unvoted or vote your shares on the matters
that will be considered at the annual meeting.
If your shares are held in street name, your nominee cannot
vote on matters that are not routine if you have not
provided it with voting instructions. Your shares will
constitute "broker non-votes." Broker non-votes count for
quorum purposes, but we do not count broker non-votes as
votes for or against any proposal.
COST OF THIS PROXY We will pay the cost of this proxy solicitation. In addition
to soliciting proxies by mail, our directors, officers and
employees may solicit stockholders personally, by telephone,
by e-mail or by facsimile. Our employees will not receive
any additional compensation for doing this. We will, on
request, reimburse banks, brokers and other nominees for
their expenses in sending proxy materials to their customers
who are beneficial owners and obtaining their voting
instructions.
HOUSEHOLDING OF PROXY In an effort to reduce printing costs and postage fees, we
MATERIAL have adopted a practice approved by the SEC called
"householding." Under this practice, stockholders who have
the same address will receive only one copy of our proxy
materials unless one or more of these stockholders notifies
us that they wish to continue receiving individual copies.
Stockholders who participate in householding will continue
to receive separate proxy cards. If you share an address
with another stockholder and received only one set of proxy
materials and would like to request a separate copy of these
materials, please submit your request either by mail
addressed to our Corporate Secretary at 10250 Regency
Circle, Suite 100, Omaha, Nebraska 68114 or by telephone at
(402) 391-0010.
ATTENDING THE ANNUAL MEETING If you are a holder of record and plan to attend the annual
meeting, please indicate this when you vote. The lower
portion of the proxy card is your admission ticket. If you
own your common stock through a broker, bank or other
nominee, you will need proof of ownership to be admitted to
the meeting. A recent brokerage statement or a letter from a
bank or broker are examples of proof of ownership. If you
want to vote in person common stock that you own through a
nominee, you must get a written proxy in your name from the
broker, bank or other nominee that holds your shares.
PROPOSAL 1:
------------------------------------------------------------
ELECTION OF DIRECTORS
------------------------------------------------------------
Our Board of Directors consists of seven directors. Our
nominating and governance committee has nominated seven
directors for election at this annual meeting. If elected,
the nominees will serve until our 2005 annual meeting and
until their successors are elected and qualified.
3
POLICY ON CANDIDATES The nominating and governance committee considers candidates
for Board membership suggested by its members and other
Board members, as well as management and stockholders. The
committee may in its discretion retain third party search
firms to identify potential candidates. Stockholders wishing
to recommend director candidates for consideration by the
committee can do so by writing to our Corporate Secretary at
10250 Regency Circle, Suite 100, Omaha, Nebraska 68114,
giving the candidate's name, biographical data and
qualifications. Our Corporate Secretary will, in turn,
deliver any stockholder recommendations for director
candidates prepared in accordance with our bylaws to the
committee. Any such recommendation must be accompanied by a
written statement from the individual of his or her consent
to be named as a candidate and, if nominated and elected, to
serve as a director.
DESCRIPTION OF SELECTION The nominating and governance committee utilizes a variety
PROCESS of methods for identifying and evaluating nominees for
director. The committee assesses the appropriate size of the
Board and whether any vacancies on the Board are expected
due to retirement or otherwise. If vacancies are
anticipated, or otherwise arise, the committee considers
various potential candidates for director. Candidates may
come to the attention of the committee through current Board
members, search firms, stockholders or other persons. These
candidates are evaluated at meetings of the committee and
may be considered at any point during the year. The
committee will consider properly submitted stockholder
nominations for candidates for the Board.
In evaluating such nominations, the nominating and
governance committee seeks to achieve a balance of
knowledge, experience and capability on the Board.
VOTES REQUIRED Directors are elected by a plurality of the votes cast at
the meeting. This means that the nominees receiving the
greatest number of votes will be elected. Votes withheld for
any nominee will not be counted.
Although we know of no reason why any of the nominees would
not be able to serve, if any nominee is unavailable for
election, the proxies will vote your common stock to approve
the election of any substitute nominee proposed by the Board
of Directors. The Board may also choose to reduce the
numbers to be elected, as permitted by our Bylaws.
INFORMATION ABOUT THE Each nominee is currently a director. Each nominee has
NOMINEES agreed to be named in this proxy statement and to serve if
elected. Each nominee has attended at least 75% of the
meetings of the Board and committees on which the nominee
has served. There is no family relationship either by blood
or by marriage between any of the nominees.
4
JERRY D. BRINGARD (AGE 67)
Mr. Bringard has been Chairman of our Board of Directors
since our inception in 2002, and was our interim President
and Chief Executive Officer from our inception until June
2003. Mr. Bringard retired in June 1998 as Vice President-
General Counsel of Ford Motor Credit Company and as a member
of its Executive Committee, having been employed by Ford
Credit for 38 years. Since that time, Mr. Bringard has
focused on educational and philanthropic activities. He
currently is President Emeritus of William Tyndale College
and a member of its Board of Directors. He also serves as
Chairman of the Law Committee of the American Financial
Services Association and as Chairman-Emeritus of The
Conference on Consumer Finance Law.
ROBERT M. AMES (AGE 61)
Mr. Ames was elected to the Board of Directors in 2003. He
is the President and Chief Executive Officer of Minute Man
Printing, Inc. and CopyCat, Inc., positions he has held for
more than five years. Mr. Ames previously was Executive Vice
President of Commercial Federal Corporation, a Nasdaq-traded
bank holding company headquartered in Omaha, Nebraska and
with commercial banking branches in seven states, where he
was responsible for strategic planning and non-branch
activities, including mortgage operations, leasing and real
estate investments. Prior thereto, Mr. Ames was an audit
manager with Deloitte & Touche and an audit partner with
Ernst & Young.
SPENCER I. BROWNE (AGE 53)
Mr. Browne was elected to the Board of Directors in 2004. He
is a principal of Strategic Asset Management, LLC, a
privately owned investment firm, which he founded in
November 1996. He also currently serves as a director of
Internet Commerce Corporation, Annaly Mortgage Management,
Delta Financial Corporation and Kronos Advanced
Technologies, Inc. Mr. Browne has held various executive and
management positions with several publicly traded companies
engaged in businesses related to the residential and
commercial mortgage loan industry. From August 1988 until
September 1996, Mr. Browne served as President, Chief
Executive Officer and a director of Asset Investors
Corporation ("AIC"), a company he co-founded in 1986. He
also served as President, Chief Executive Officer and a
director of Commercial Assets, Inc., an affiliate of AIC,
from its formation in October 1993 until September 1996. In
addition, from June 1990 until March 1996, Mr. Browne served
as President and a director of M.D.C. Holdings, Inc., a
national homebuilder and mortgage banking company.
5
PHILIP S. COTTONE (AGE 64)
Mr. Cottone was elected to the Board of Directors in 2004.
He has been the President of Property Trust Advisory
Corporation, a real estate advisory firm, since 1987 and the
Chairman of Ascott Investment Corporation, a real estate
development and syndication company, since 1982. Mr. Cottone
also currently serves as Vice President of Rutherford, Brown
& Catherwood, a Philadelphia, PA, based broker-dealer, and
as Vice President of Universal Field Services, a Tulsa,
Oklahoma, right-of-way acquisition and engineering services
firm. He is a director of Boston Capital Real Estate
Investment Trust, and RC Company, Inc., a Paoli,
Pennsylvania general contractor, and an affiliate of
Universal. From 1977 through 1983, and again from 1998
through 2002, Mr. Cottone was General Counsel and a member
of the Executive Committee of the International Right of Way
Association. Mr. Cottone is a Counselor of Real Estate, was
a 1999 Vice President of the Counselors, and is the Chairman
of the Board in 2004.
ROBERT A. PECK (AGE 56)
Mr. Peck was elected to the Board of Directors in 2003. He
has been President of the Greater Washington Board of Trade,
the regional chamber of commerce for Washington D.C. and its
Virginia and Maryland suburbs since October 1, 2001. From
1995 to 2001, Mr. Peck was the appointed Commissioner of the
Public Buildings Service of the General Services
Administration. In this capacity, he was in charge of
nationwide asset management, design, construction, leasing,
building operations, security and disposals for a real
estate portfolio of more than 340 million square feet in
more than 8,300 public and private buildings accommodating
over one million federal workers. He oversaw an annual
budget of approximately $5.5 billion, more than 90% of it
contracted out, and a workforce of about 7,300.
THOMAS D. PESCHIO (AGE 63)
Mr. Peschio has been our President since June 2003 and a
director since our inception. From 1997 to December 2003,
Mr. Peschio was a stockholder, a member of the Board of
Directors and Executive Vice President of The Lund Company
in Omaha, Nebraska, a commercial real estate brokerage and
management firm with 33 affiliated investment partnerships
and with property management responsibility for over 70
commercial properties. In this capacity, Mr. Peschio was
responsible for brokerage activities of 20 licensed sales
personnel, property acquisitions, dispositions, investments,
leasing, marketing and administrative activities.
RICHARD H. SCHWACHTER (AGE 59)
Mr. Schwachter has been a director since our inception. Mr.
Schwachter has been continually engaged in the private
practice of law since 1969, focusing on real estate and
securities law. He has been a general partner and or owner
of strip shopping centers, apartment complexes, and
government subsidized housing projects. He was for many
years a consultant to Concord Assets Group a company that
was one of the largest owners of strip shopping centers in
the country.
BOARD RECOMMENDATION THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" EACH NOMINEE.
6
THE BOARD GPT is governed by a Board of Directors and various
committees of the Board that meet throughout the year.
Directors discharge their responsibilities throughout the
year at Board and committee meetings and also through other
communications with the chairman, chief executive officer
and others regarding matters of concern and interest to the
Corporation. During 2003, the Board met four times. The
Board of Directors has regularly scheduled meetings of non-
management directors.
COMMITTEES The Board has an audit committee, a compensation committee,
a nominating and governance committee, a finance committee
and a real estate investment committee. The following
describes for each committee its current membership and its
mission.
AUDIT COMMITTEE ROBERT M. AMES (CHAIR), JERRY D. BRINGARD, SPENCER I. BROWNE
AND ROBERT A. PECK
The audit committee, which at the time consisted of Messrs.
Bringard, Peschio and Schwachter, met once in 2003. The
audit committee assists the board in overseeing (i) our
accounting and financial reporting processes; (ii) the
integrity and audits of our financial statements; (iii) our
compliance with legal and regulatory requirements; (iv) the
qualifications and independence of our independent auditors;
and (v) the performance of our audit function. The audit
committee also:
- has sole authority to appoint or replace our
independent auditors;
- pre-approves all audit and permitted non-audit
engagement fees, scope and terms with our independent
auditors; and
- meets at least quarterly with our senior executive
officers and our independent auditors in separate executive
sessions.
The audit committee is also responsible for preparing the
audit committee report required by SEC rules, which is
included in this proxy statement on page .
The Board has determined that each audit committee member is
independent in accordance with New York Stock Exchange
listing standards and SEC regulations, and that Robert M.
Ames is an audit committee financial expert as defined by
the SEC.
COMPENSATION COMMITTEE SPENCER I. BROWNE (CHAIR), JERRY D. BRINGARD, PHILIP S.
COTTONE AND RICHARD H. SCHWACHTER
The compensation committee did not meet in 2003. The
principal functions of the compensation committee are to:
- evaluate the performance of our senior executives;
- review and approve senior executive compensation
plans, policies and programs;
- consider the design and competitiveness of our
compensation plans; and
7
-administer and review changes to our incentive, share option and restricted
share and long-term incentive plans under the terms of the plans.
The committee also reviews and approves corporate goals and objectives relevant
to chief executive officer compensation, evaluates the chief executive officer's
performance in light of those goals and objectives, and recommends to the board
the chief executive officer's compensation levels based on its evaluation. The
committee has the authority to retain and terminate any compensation consultant
to be used to assist in the evaluation of chief executive officer or senior
executive compensation.
The compensation committee is also responsible for preparing the compensation
committee report required by SEC rules, which is included in this proxy statement
on page 13.
The Board has determined that each compensation committee member is independent
in accordance with New York Stock Exchange listing standards.
NOMINATING AND GOVERNANCE PHILIP S. COTTONE (CHAIR), ROBERT M. AMES, JERRY D. BRINGARD AND RICHARD H.
COMMITTEE SCHWACHTER
The nominating and governance committee did not meet in 2003. It is responsible
for seeking, considering and recommending to the board qualified candidates for
election as directors and recommending a slate of nominees for election as
directors at the annual meeting. It also periodically prepares and submits to the
board for adoption the committee's selection criteria for director nominees. It
reviews and makes recommendations on matters involving general operation of the
board and our corporate governance, and it annually recommends to the board
nominees for each committee of the board. In addition, the committee annually
facilitates the assessment of the board of director's performance as a whole and
of the individual directors and reports thereon to the board. The committee has
the sole authority to retain and terminate any search firm to be used to identify
director candidates.
The Board has determined that each nominating and governance committee member is
independent in accordance with New York Stock Exchange listing standards.
FINANCE COMMITTEE ROBERT A. PECK (CHAIR), ROBERT M. AMES, SPENCER I. BROWNE AND THOMAS D. PESCHIO
The finance committee was established in 2004. It monitors the present and future
capital requirements and opportunities pertaining to our business and reviews and
provides guidance to the Board and management about all proposals concerning our
major financial policies. The finance committee reviews and provide guidance to
the full Board and management about all proposals concerning our major financial
policies, including:
- Policies relating to our cash needs, stockholder distributions, share
repurchases and investments;
- Strategic planning and budgeting;
8
- Adjustments to our capital structure;
- Insurance and risk management;
- Tax planning and compliance;
- Proposed mergers, acquisitions, divestitures and
strategic investments; and
- Other transactions or financial issues that management
desires to have reviewed by the committee.
The finance committee also has the authority to designate
the officers and employees of GPT who can execute documents
and act on behalf of GPT in the ordinary course of business
pursuant to previously approved banking, borrowing, and
other financing agreements.
REAL ESTATE INVESTMENT RICHARD H. SCHWACHTER (CHAIR), PHILIP S. COTTONE, ROBERT A.
COMMITTEE PECK AND THOMAS D. PESCHIO
The real estate investment committee did not meet in 2003.
It reviews and approves properties for acquisition by GPT
and performs such other functions as may be specified from
time to time by the Board. In addition, the committee may
approve any property acquisition that has a purchase price
of $18,000,000 or less.
INFORMATION ABOUT CURRENT EXECUTIVE OFFICERS
------------------------------------------------------------
Our executive officers are set forth below. There is no
family relationship either by blood or by marriage between
our executive officers.
THOMAS D. PESCHIO (AGE 63)
Mr. Peschio has been our president and chief executive
officer since June 2003. His relevant experience is
discussed above. See "Information about the nominees."
NANCY D. OLSON (AGE 52)
Ms. Olson has been our chief financial officer since
September 2003. From April 1999 to December 2003, Ms. Olson
was the vice president of administration and finance of The
Lund Company, where she has been responsible for developing,
directing and managing the accounting, human resources and
office administration functions of The Lund Company. From
August 1998 through April 1999, Ms. Olson was engaged in
philanthropic activities. From June 1986 through July 1998,
Ms. Olson served as the chief financial officer for the
Visiting Nurse Association of the Midlands, an organization
with a $20 million budget and over 450 employees. In that
position she established internal accounting standards,
oversaw and managed all financial reporting to the Financial
Committee of its Board of Directors and negotiated all
engagements with the organization's outside auditors.
9
COMPENSATION
------------------------------------------------------------
DIRECTOR COMPENSATION
------------------------------------------------------------
DIRECTOR FEES Each director is paid a director's fee of $25,000 per year.
Directors also receive a fee of $1,000 for each board
meeting attended. We pay directors a fee of $10,000 per year
for service as chairman of our board of directors, $7,500
per year for service as chairman of our audit committee,
$6,000 per year for service as the chairman of our
compensation committee and $5,000 per year for service as
chairman for any other of our committees. Each director is
also paid a fee of $750 per committee meeting attended,
except when the committee meeting is on the same day as a
board meeting. In addition, we reimburse all directors for
reasonable out-of-pocket expenses incurred in connection
with their services on the board of directors. Directors who
are employees receive no additional compensation for their
service as a director.
STOCK GRANTS Each non-employee director is also granted 2,000 shares of
our restricted common stock each year. Each non-employee
director, other than Messrs. Bringard and Schwachter,
received a one-time grant of 2,500 shares of our restricted
common stock in connection with their initial election to
the board. Messrs. Bringard and Schwachter each received a
one-time grant of 15,000 shares of our restricted stock.
EXECUTIVE COMPENSATION
------------------------------------------------------------
We did not pay any compensation to our executive officers in
2003 or any prior years.
SECURITY OWNERSHIP
------------------------------------------------------------
The following table summarizes the beneficial ownership of
our common stock as of April 1, 2004 for:
- each person who we know beneficially owns more than 5% of
our common stock;
- each director and nominee for director;
- each executive officer; and
- all directors and officers as a group.
10
Except as otherwise noted, each person named below has sole
voting and investment power with respect to such securities.
Name of Beneficial Owner Number of Shares Beneficially Owned Percent of
------------------------ ----------------------------------- ----------
Class
-----
Cramer Rosenthal McGlynn, LLC 1,692,500(1) 8.24%(1)
520 Madison Avenue
New York, New York 10022
Hunter Global Investors L.P. 1,328,300(2) 6.5%(2)
350 Park Avenue, 11(th) Floor
New York, New York 10022
Robert M. Ames 6,500 *
Jerry D. Bringard 15,000 *
Spencer I. Browne 12,500 *
Philip S. Cottone 3,750 *
Robert A. Peck 5,000 *
Thomas D. Peschio 112,500 *
Richard H. Schwachter 15,000 *
Nancy D. Olson 29,980 *
All directors and executive
officers 200,230 *
as a group
---------------------------
* Less than 1%.
(1) Based on a Schedule 13G filed with the SEC on March 9,
2004. According to the Schedule 13G, Cramer Rosenthal
McGlynn, LLC has sole voting power with respect to 1,054,500
shares and sole dispositive power with respect to 1,093,800
shares and shared voting and dispositive power with respect
to 598,700 shares.
(2) Based on a Schedule 13G filed with the SEC on February
6, 2004 by Hunter Global Associates L.L.C., Hunter Global
Investors L.P., Duke Buchanan III, Hunter Global Investors
Fund I L.P. and Hunter Global Investors Fund II L.P.
According to the Schedule 13G, Hunter Global Investors L.P.
has shared voting and dispositive power with respect to all
of these shares.
EMPLOYMENT AGREEMENTS
------------------------------------------------------------
We have entered into employment agreements with Thomas D.
Peschio, our president and chief executive officer, and
Nancy D. Olson, our treasurer and chief financial officer.
Mr. Peschio's agreement provides that he receives an annual
base salary of $350,000 with minimum annual increases based
upon the Consumer Price Index. Mr. Peschio will be entitled
to receive annual bonuses of 40%, 60% or 80% of his annual
base salary, subject to specified financial performance
goals to be established yearly by our compensation
committee.
11
The initial term of Mr. Peschio's agreement is five years.
After the initial term, the agreement will automatically
extend for additional one year periods unless GPT or Mr.
Peschio elects not to extend the agreement. If Mr. Peschio's
employment ends for any reason, we will pay accrued salary,
bonuses and incentive payments already determined, and other
existing obligations. In addition, if we terminate Mr.
Peschio's employment without cause, if Mr. Peschio is
terminated as a result of death or total disability or if
Mr. Peschio voluntarily terminates his employment for good
reason, we must pay all the amounts due under the employment
agreement, including base salary and a bonuses equal to the
prior year's bonus, but not less than $150,000 per year, for
a number of years equal to the greater of the remainder of
the initial term of the employment agreement or three years.
Additionally, in the event of a termination by us for any
reason other than for cause, or if Mr. Peschio voluntarily
terminates his employment for good reason, including a
change in control, all of the unvested restricted shares
granted to Mr. Peschio will fully vest. If Mr. Peschio's
employment ends for cause or due to a voluntary termination
on the part of Mr. Peschio other than for good reason, then
any unvested restricted shares granted to Mr. Peschio will
terminate unless otherwise agreed to by us.
If we fail to renew Mr. Peschio's employment agreement upon
the expiration of its term, Mr. Peschio will receive a lump
sum payment equal to two years of his most recent base
salary plus the average of his yearly bonus awards for the
previous two years. Additionally, all unvested restricted
shares granted to Mr. Peschio will fully vest.
Ms. Olson's employment agreement provides that she receives
an annual base salary of $130,000 with minimum annual
increases based on the Consumer Price Index. Ms. Olson is
also eligible to receive annual bonuses under our approved
bonus plans.
The initial term of the agreement is three years. At the end
of the initial three year term, Ms. Olson's employment will
automatically extend for additional one year periods unless
GPT or Ms. Olson elects not to extend the employment. We may
terminate Ms. Olson's employment with appropriate notice
with or without cause.
If we terminate Ms. Olson's employment without cause, if Ms.
Olson's employment is terminated as a result of her death or
total disability or if Ms. Olson voluntarily terminates her
employment for good reason, we must pay all the amounts due
under her employment agreement, including base salary and a
bonus equal to the prior year's bonus. Additionally, in the
event of a termination by us for any reason other than for
cause, or if Ms. Olson voluntarily terminates her employment
for good reason, all of the unvested restricted shares
granted to Ms. Olson will fully vest. If Ms. Olson's
employment ends for cause or due to her voluntary
termination other than for good reason, then any unvested
restricted shares granted to Ms. Olson will terminate unless
otherwise agreed to by us.
12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
------------------------------------------------------------
Our executive compensation program is administered by our
compensation committee. The compensation committee approves
compensation objectives and policies as well as compensation
plans and specific compensation levels for all executive
officers.
COMPENSATION POLICIES The compensation committee seeks to provide a total
compensation package that will motivate and retain key
employees. The compensation committee also seeks to provide
incentives to achieve short and long-term business
objectives that will enhance the value of our stock. When
determining compensation amounts, the compensation committee
considers (1) the base salary levels of executives with
similar responsibilities in companies in a similar line of
business, (2) the executive's experience in his or her
position and in the line of business as well as his or her
performance over a sustained period of time, and (3) the
historical and projected financial performance of GPT. A
review of the financial performance includes such measures
as revenues, funds from operations, operating margin, net
income, return on stockholders' equity, return on revenues
and total market value. The compensation committee makes a
subjective determination based upon all such factors. The
officers' compensation will have three components: (1) base
salary, (2) cash and/or stock bonuses and (3) long-term
incentive compensation.
BONUSES Bonuses for the officers are based on realizing financial
targets set forth in formulas described in each of their
employment agreements. The formulas are individually
tailored to motivate the particular executive in accordance
with his or her position, his or her prior performance and
the potential impact he or she could have on profit for us.
LONG-TERM INCENTIVE Long-term incentive compensation opportunities are provided
COMPENSATION through stock options, stock appreciation rights, restricted
stock awards, phantom stock unit awards, performance share
unit awards and other stock bonus awards under our equity
incentive plan.
CHIEF EXECUTIVE OFFICER The compensation committee believes that the role of chief
COMPENSATION executive officer is particularly important in reaching
corporate objectives and accordingly reviews the chief
executive officer's compensation package annually based on
individual performance and our overall performance. In
establishing Mr. Peschio's compensation, the compensation
committee compares his compensation with the compensation of
the chief executive officers in our industry in relation to
our relative performance with respect to the industry and
considers our performance during the fiscal year.
13
TAX CONSEQUENCES FOR Section 162(m) of the Internal Revenue Code generally
COMPENSATION prohibits a tax deduction to public companies for annual
compensation over $1 million paid to each of the
corporation's chief executive officer and four other most
highly compensated executive officers, except to the extent
such compensation qualifies as "performance-based." Provided
that our business objectives are met, we intend to structure
future incentive compensation arrangements for our executive
officers in a manner that will allow such compensation to be
fully deductible for Federal income tax purposes.
COMPENSATION COMMITTEE
SPENCER I. BROWNE
JERRY D. BRINGARD
PHILIP S. COTTONE
RICHARD H. SCHWACHTER
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
------------------------------------------------------------
There are no compensation committee interlocks and none of
our employees serves on the compensation committee.
PERFORMANCE GRAPH
------------------------------------------------------------
APPOINTMENT OF EXTERNAL AUDITOR
------------------------------------------------------------
ERNST & YOUNG LLP Ernst & Young LLP served as our external auditor with
respect to the audit of our financial statements for the
year ending December 31, 2004. All services provided by
Ernst & Young have been reviewed with our audit committee
and senior management to confirm that the performance of
such services meets regulatory requirements for auditor
independence.
On September 2, 2003 we replaced our independent accounts,
Zwick & Steinberger, P.L.L.C. ("Zwick"), and engaged the
services of Ernst & Young as our new independent accounts.
The audit committee recommended, and our Board of Directors
approved, the dismissal of Zwick and the appointment of
Ernst & Young.
During our fiscal years ended December 31, 2002 and December
31, 2001, and the subsequent interim period through
September 2, 2003, there no disagreements between us and
Zwick on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to Zwick's
satisfaction, would have caused Zwick to make reference to
the subject matter of the disagreement in connection with
its reports; and there were no reportable events described
under Item 304(a)(1)(v) of Regulation S-K.
14
The audit reports of Zwick on our consolidated financial statements as of and for
the fiscal years ended December 31, 2002 and December 31, 2001 did not contain any
adverse opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. During the years ended December
31, 2002 and December 31, 2001 and through the date of Ernst & Young's engagement by
us, we did not consult with Ernst & Young with respect to the application of
accounting principles to a specified transaction, either completed or proposed, or
the type of audit opinion that might be rendered on our consolidated financial
statements, or any other matter or reportable events as set forth in Item
304(a)(2)(i) and (ii) of Regulation S-K.
Zwick has furnished us with a letter addressed to the SEC stating its agreement with
the statements contained in the preceding three paragraphs.
FEES The following table summarizes the fees we paid to Zwick and Ernst & Young in 2002
and 2003:
AGGREGATE FEES 2003 2002
-------------- ---- ----
Audit $427,644 $29,546
Audit-related 43,850 --
Tax -- --
All other -- --
-------- -------
Total $471,494 $29,546
In addition to the amounts shown above, we paid Zwick $128,928 in
2003.
AUDIT FEES - Audit fees consist of fees paid for the audit
of our annual financial statements.
AUDIT-RELATED FEES - Audit-related fees consist of audits of
prospective acquisition properties pursuant to Item 3-14 of
Regulation S-X.
A member of Ernst & Young will be present at the meeting,
will have the opportunity to make a statement and will be
available to respond to appropriate questions by
stockholders.
AUDIT COMMITTEE REPORT
------------------------------------------------------------
Our audit committee consists entirely of independent
directors and operates under a written charter adopted by
the Board, a copy of which is attached as Appendix A to this
proxy statement.
Management is responsible for our internal controls,
preparation of our financial statements and the financial
reporting processes. The external auditor is responsible for
performing an independent audit of our financial statements
in accordance with generally accepted auditing standards and
to issue a report thereon. The committee's responsibility is
to monitor and oversee these processes.
15
In this context, the committee has met and held discussions
with management and the external auditor. Management
represented to the audit committee that our financial
statements for the year ended December 31, 2003 were
prepared in accordance with generally accepted accounting
principles, and the committee has reviewed and discussed the
financial statements with management and the external
auditor. The committee discussed with the external auditor
matters required to be discussed by Statement on Auditing
Standards No. 61 (Communications with Audit Committees).
Our external auditor also provided the committee with the
written disclosures required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit
Committees), and the committee discussed with the external
auditor its independence.
Based on the committee's review of the audited financial
statements and the various discussions referred to above,
the committee recommended to the Board, and the Board has
approved, that the audited financial statements be included
in our Annual Report on Form 10-K for the year ended
December 31, 2003, for filing with the SEC.
AUDIT COMMITTEE
ROBERT M. AMES
JERRY D. BRINGARD
SPENCER I. BROWNE
ROBERT A. PECK
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR THE 2005 ANNUAL
MEETING
------------------------------------------------------------
STOCKHOLDER PROPOSALS Under SEC rules, if a stockholder wants us to include a
proposal in our proxy statement for our 2005 annual meeting
of stockholders, the proposal must be received by us at our
principal executive offices at 10250 Regency Circle, Suite
100, Omaha, Nebraska 68114 by December 27, 2004. The
proposals should be sent to the attention of our Corporate
Secretary.
Under our bylaws, a stockholder must follow specified
procedures to nominate persons for election as directors or
to introduce an item of business at an annual meeting of
stockholders. For further information, you may obtain a copy
of our bylaws without charge by sending a written request to
Government Properties Trust, Inc., 10250 Regency Circle,
Suite 100, Omaha, Nebraska 68114.
The Board is not aware of any matters that are expected to
come before the 2004 annual meeting other than those
referred to in this proxy statement. If any other matter
should come before the annual meeting, the persons named in
the accompanying proxy intend to vote the proxies using
their best judgment.
The chairman of the meeting may refuse to allow the
transaction of any business not presented beforehand or to
acknowledge the nomination of any person not made in
compliance with these procedures.
16
STOCKHOLDER COMMUNICATION Stockholder who wish to communicate with our directors
regarding GPT may send such communications to the directors
in care of our Corporate Secretary, 10250 Regency Circle,
Suite 100, Omaha, Nebraska 68114. Our Corporate Secretary
will forward all communications to the directors. Our policy
is to encourage our Board members to attend the annual
meeting of stockholders.
You may obtain a copy of our Annual Report on Form 10-K
without charge by sending a written request to Government
Properties Trust, Inc., 10250 Regency Circle, Suite 100,
Omaha, Nebraska 68114. Our Annual Report on Form 10-K is
also available at www.gptrust.com.
Thomas D. Peschio
Chief Executive Officer
Omaha, Nebraska
April 24, 2004
17
APPENDIX A
GOVERNMENT PROPERTIES TRUST, INC.
AUDIT COMMITTEE CHARTER
I. PURPOSE
The Audit Committee is appointed by the Board of Directors of Government
Properties Trust, Inc. (the "Company") (1) to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing the
financial reports and other financial information provided by the Company
to any governmental body or the public; (2) to implement the Company's
systems of internal controls regarding finance, accounting, legal
compliance and ethics that management and the Board of Directors has
established; and (3) to implement the Company's auditing, accounting and
financial reporting processes generally. Consistent with this function,
the Audit Committee should encourage continuous improvement of, and should
foster compliance with, the Company's policies, procedures and practices
at all levels. The Audit Committee's primary duties and responsibilities
are as follows:
- To serve as an independent and objective party to monitor the
Company's financial reporting process and internal control system.
- To review and appraise the audit efforts of the Company's
independent auditors and management of the Company.
- To provide an open avenue of communication among the independent
auditors, financial and senior management, employees and the Board
of Directors.
- To assist the Board of Directors' oversight of (1) the integrity of
the Company's financial statements; (2) the Company's compliance
with legal and regulatory requirements, (3) the independent
auditor's qualifications and independence, and (4) the performance
of the Company's internal audit function and independent auditors.
- Prepare the report required to be included in the Company's annual
proxy statement.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
II. COMMITTEE MEMBERSHIP
The Audit Committee shall consist of no fewer than three members. Each
member of the Audit Committee: (1) other than in their capacity as a
member of the Board of Directors or any board committee, does not directly
or indirectly accept any consulting, advisory or other compensatory fee
from the Company; (2) is not an affiliated person of the Company or any of
the Company's subsidiaries; and (3) has no relationship to the Company
that may interfere with the exercise of his independence from management
and the Company. Each member of the Audit Committee shall also be an
"independent director" as such term is defined from time-to-time by the
New York Stock Exchange.
All members of the Audit Committee shall be financially literate, as such
qualification is interpreted by the Company's Board of Directors in its
business judgment, or must become financially literate within a reasonable
period of time after their appointment to the Audit Committee, and at
least one member
A-1
of the Audit Committee shall be an "audit committee financial expert," as
that term is defined by the Securities and Exchange Commission ("SEC").
The members of the Audit Committee shall be appointed by the Board of
Directors at the recommendation of the Nominating and Governance
Committee. Audit Committee members may be replaced by the Board. The Audit
Committee Chairman shall be designated by the Board of Directors, or if
the Board of Directors chooses not to do so, by a majority vote of the
Audit Committee.
III. MEETINGS
The Audit Committee shall meet at least four times per year, or more
frequently as circumstances dictate. A majority of the members of the
Audit Committee shall constitute a quorum for the transaction of business.
The Audit Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board of
Directors.
The Audit Committee will provide written reports to the Board of Directors
of the Company regarding recommendations of the Audit Committee submitted
to the Board of Directors for action, and copies of the written minutes of
its meetings.
IV. COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to retain and terminate
any public accounting firm engaged (including resolution of disagreements
between management and the independent auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or
performing other audit, review or attestation services for the Company and
to approve such public accounting firm's fees and other retention terms.
The independent auditor shall report directly to the Audit Committee. The
Audit Committee has the ultimate authority and responsibility to select,
evaluate and, where appropriate, replace the independent auditors (or to
nominate the independent auditors to be proposed for stockholder approval
in any proxy statement). The Audit Committee shall also have the authority
to obtain advice and assistance from internal or external legal,
accounting or other advisors.
The Company shall provide for appropriate funding, as determined by the
Audit Committee, for payment of compensation to the independent auditor
for the purpose of rendering or issuing an audit report and to any
advisors employed by the Audit Committee.
To fulfill its duties and responsibilities the Audit Committee shall:
Review Procedures
Review and reassess the adequacy of this Charter at least annually and recommend
any proposed changes to the Board of Directors for approval.
1. Review and discuss with management and the independent auditors the
Company's audited financial statements prior to the release of
year-end earnings and/or the Company's financial statement and
prior to filing the Company's Annual Report on Form 10-K, including
the Company's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
A-2
2. Review and discuss with management and the independent auditors the
Company's quarterly financial results, including the results of
reviews by the independent auditors, prior to the release of
quarterly earnings and/or the Company's financial statement and
prior to filing the Company's Quarterly Report on Form 10-Q,
including the Company's disclosures under "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
3. Review, as appropriate, any other material financial information
submitted to any governmental or public body, including any
certification, report, opinion, or review rendered by the
independent auditors.
4. Set clear Company policies concerning the hiring of employees of
the Company's independent auditors.
5. Obtain and review, at least annually, a report by the independent
auditor describing the firm's internal quality control procedures,
any material raised by the most recent internal quality-control
review or peer review, of the firm or by any inquiry or
investigation by governmental or professional authorities, within
the preceding five years, respecting one or more independent audits
carried out by the firm, and any steps take to deal with such
issues and all relationships between the independent auditor and
the Company.
6. Discuss earnings press releases, as well as financial information
and earnings guidance provided to analysts and rating agencies.
7. Discuss policies with respect to risk assessment and risk
management.
8. Periodically meet separately with management, internal auditors and
independent auditors.
9. Report regularly to the board of directors.
10. Perform an annual performance evaluation.
Independent Auditors
11. Pre-approve the engagement of the independent auditors by the
Company for audit or permitted non-audit services.
12. Ensure that the independent auditors submit on a periodic basis to
the Audit Committee a formal written statement delineating all
relationships between the auditor and the Company, consistent with
Independence Standards Board Standard No. 1.
13. Actively engage in dialogue with the independent auditors and legal
counsel with respect to any disclosed relationships or services
that may impact the objectivity and independence of the independent
auditors. In considering independence, receive confirmation that
the independent auditors are independent pursuant to Rule 2-01 of
Regulation S-X.
14. Recommend that the Board of Directors take appropriate action in
response to the independent auditors' report to satisfy itself of
the independent auditors' independence.
15. Recommend to the Board policies for the Company's hiring of
employees or former employees of the independent auditor who
participated in any capacity in the audit of the Company.
16. Approve, where appropriate, fees and other significant compensation
to be paid to the independent auditors.
A-3
17. Meet with the independent auditors to review the scope of the
proposed audit for the current year, the audit procedures to be
utilized, the location, reliance on management, and staffing for
the audit.
18. Retain and terminate the Company's independent auditors (subject,
if applicable, to shareholder ratification).
19. Review with the independent auditor any audit problems or
difficulties and management's response.
20. Confirm that the audit partners of the independent auditors are
rotated in accordance with SEC requirements.
21. Assess the performance of the independent auditors and whether it
is in the best interest of the Company to regularly rotate its
independent auditors.
22. Consider whether the engagement of the independent auditors for
non-audit services is compatible with maintaining the independent
auditors' independence and review the fees for such services. If
appropriate, approve the payment of such fees.
23. Review the experience and credentials of the senior individuals
working for the independent auditors on the Company's account.
24. Review the policies and procedures of the independent auditors with
respect to quality control.
25. Following each audit by the independent auditors, obtain from the
independent auditors assurance that Section 10A of the Exchange Act
has not been implicated.
26. Following each audit by the independent auditors, discuss and
review with the independent auditors the report the independent
auditors are required to provide the Audit Committee regarding: (i)
all critical accounting policies and practices to be used; (ii) all
alternative treatments within GAAP for policies and practices
related to material items that have been discussed with management,
including ramifications of the use of such alternative disclosures
and treatments and the treatment preferred by the independent
auditors; and (iii) other material written communications between
the independent auditors and the management.
27. In connection with the Company's year-end financials, discuss with
financial management and the independent auditors significant
issues regarding accounting principals, practices and judgments and
any items required to be communicated by the independent auditors
in accordance with Statement on Accounting Standards No. 61.
28. Review any opinions of the independent auditors that management
received on the application of accounting principles to a
completed, proposed or hypothetical transaction pursuant to
Statement on Auditing Standards No. 50, and discuss with financial
management and the independent auditors how the election of
alternative methods permitted under GAAP would impact the financial
statements.
29. Discuss and review with management and the independent auditors any
off-balance sheet arrangements, as well as their effect and the
effect of emerging issues arising out of accounting and regulatory
proposals on the financial statements of the Company.
A-4
30. Discuss and review with management and the independent auditors any
non-GAAP financial measures disclosed by the Company, the most
directly comparable GAAP financial measure and the reconciliation
between the two financial measures.
31. Discuss and review with management and the independent auditors any
correspondence with the NYSE or governmental agencies concerning
material issues related to the financial statements, audits or
accounting policies of the Company.
32. Discuss and review with management and the independent auditors any
complaints by employees involving material concerns related to the
financial statements, audits or accounting policies of the Company.
33. In connection with the Company's interim financials, discuss with
financial management and independent auditors any significant
changes to the Company's accounting principles and any items
required to be communicated by the independent auditors in
accordance with Statement on Accounting Standards No. 71. The
Chairman of the Audit Committee may represent the entire Audit
Committee for purposes of the quarterly review and communication.
34. Consider and approve, if appropriate, significant changes to the
Company's auditing and accounting principles and practices as
suggested by the independent auditors or management.
Improvement Process
35. Meet periodically with management to review the Company's major
financial risk exposure and the steps management has taken to
monitor and control such exposures.
Proxy Statement
36. Approve the report of the Audit Committee required by the rules of
the SEC to be included in the Company's annual proxy statement.
37. Oversee the submission to the NYSE on an annual basis, within one
month of the Company's annual meeting, or upon a change of the
composition of the Audit Committee, the written affirmation
required by the NYSE concerning the composition and expertise of
the Audit Committee members and the review and reassessment of this
Charter.
38. Oversee the publication of this Charter at least every three years
in the Company's annual proxy statement in accordance with SEC
regulations.
Ethical Compliance
39. Establish, review and update periodically a Code of Ethical Conduct
(the "Ethical Code").
40. Review management's monitoring of the Company's compliance with the
Ethical Code.
41. Obtain reports from management, the Company's senior internal
auditing executive and the independent auditor that the Company's
subsidiary entities are in conformity with applicable legal
requirements and the Company's Ethical Code.
42. Advise the Board of Directors on the Company's policies and
procedures regarding compliance with the Ethical Code.
A-5
Procedures for Handling Complaints
43. Establish procedures for the receipt, retention and treatment of
(a) complaints received by the Company regarding accounting,
internal accounting controls or auditing matters; and (b) the
confidential, anonymous submission by employees of the Company of
concerns regarding questionable accounting or auditing matters.
Miscellaneous
44. As appropriate, obtain advice and assistance from outside legal,
accounting or other advisors.
45. Review with the Company's legal counsel legal matters that may have
a material impact on the financial statements, the Company's
compliance policies related to financial matters or the Company's
Code of Business Conduct and Ethics and any material reports or
inquiries related to financial matters that are received from
regulators or governmental agencies.
46. Periodically conduct a self-assessment of the Audit Committee's
performance.
47. Advise the Board of Directors on the Company's policies and
procedures regarding compliance with applicable laws and
regulations related to financial matters.
48. Submit the minutes of all meetings of the Audit Committee to, and
discuss the matters discussed at each Audit Committee meeting with,
the Board of Directors, as appropriate.
49. Discuss with management proper review systems to see that the
Company's financial statements, reports and other financial
information are disseminated to governmental organizations and the
public in accordance with legal requirements.
50. Although it is not the duty of the Audit Committee to conduct
investigations on behalf of the Company, it shall have the power to
do so in connection with audit-related matters.
51. Perform any other activities consistent with this Charter, the
Company's Bylaws and governing law, as the Audit Committee or the
Board of Directors deems necessary or appropriate.
V. ROLE OF AUDIT COMMITTEE
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are
complete and accurate and are prepared in accordance with generally
accepted accounting principles. These are the responsibilities of
management and the independent auditors. Nor is it the duty of the Audit
Committee to assure compliance with laws and regulations, the Code of
Ethics and the Insider Trading Policy.
Adopted September 26, 2003
A-6
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE.
1. Election of directors: 01 Jerry D. Bringard 02 Robert M. Ames [ ] Vote FOR [ ] Vote WITHHELD
03 Spencer I. Browne 04 Philip S. Cottone all nominees from all nominees
05 Robert A. Peck 06 Thomas D. Peschio (except as marked)
07 Richard H. Schwachter
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, --------------------------------------------------
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH NOMINEE.
Address Change? Mark Box [ ]
Indicate changes below: Date
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Signature(s) in Box
Please sign exactly as your name appears on this
Proxy. If held in joint tenancy, all persons must
sign. Trustees, administrators, etc., should
include title and authority. Corporations should
provide full name of corporation and title of
authorized officer signing the proxy.
GOVERNMENT PROPERTIES TRUST, INC.
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, JUNE 2, 2004
1:00 P.M.
OFFICES OF BLACKWELL SANDERS PEPER MARTIN LLP
1620 DODGE STREET, SUITE 2100
OMAHA, NEBRASKA 68102
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[GPT LOGO] Government Properties Trust,Inc.
10250 Regency Circle, Suite 100, Omaha,Nebraska 68114 PROXY
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS OF GOVERNMENT PROPERTIES TRUST, INC.
(THE "COMPANY") TO BE HELD ON JUNE 2, 2004 OR ANY ADJOURNMENTS THEREOF.
The shares of stock you own will be voted as you specify below. IF NO CHOICE IS SPECIFIED, YOUR SHARES WILL BE VOTED "FOR" EACH
NOMINEE.
By signing this proxy, you revoke all prior proxies and appoint Jerry D. Bringard and Thomas D. Peschio, or either of them, as
proxies with full power of substitution, to vote your shares on the matters shown below and any other matter which may properly come
before the Annual Meeting and all adjournments. See reverse for voting instructions.
See reverse for voting instructions.